January 24, 2020 Weekly Capital Market Update. The Dow Jones Industrial Average (-1.22%) posted the biggest decline followed by the S&P 500 Index (‑1.03%) and the Nasdaq (-0.79%) on news that the coronavirus has reached elevated spread risk, all of which overshadowed positive corporate earnings. With about 16% of the 500 companies in the $SPX having reported earnings, 73% have beaten EPS estimates for Q4, above the 5-year average. Further, reported corporate net profit margin is running at relatively healthy 10.7% for Q4. The U.S. equity markets will be keenly focused on the upcoming corporate earnings of four market leaders next week: Apple, Microsoft, Facebook and Starbucks.

January 17, 2020 Weekly Capital Market Update. The Nasdaq (+2.29%) led the major indices, followed by the S&P 500 Index (+1.97%) and Dow Jones Industrial Average (+1.82%) on positive trade, economic and earnings news. On the week, the U.S. and China signed the Phase One agreement and the U.S. Senate approved the USMCA agreement. Fourth quarter corporate earnings season started well with better-than-expected results, particularly in the banking group with names like JP Morgan Chase, Citigroup and Morgan Stanley. During the JP Morgan Chase earnings call, CEO James Dimon, provided positive commentary on the U.S. consumer (which is 68% of GDP): “Wage growth is up. Their home values are up. And the amount of the income they have that goes to servicing interest expense is as low as it’s been in 50 years.” Another positive data economic point is the consumer balance sheet, where the average "Fico" score was reported at a record high in 2019. Also, the Philly Fed manufacturing index jumped 14.6 to 17.0 in January, much better than forecasted.

January 10, 2020 Weekly Capital Market Update. For the week, the S&P 500 Index and the Dow Jones Industrial Average gained +0.94% and +0.66%, respectfully, on news that Iran-U.S. conflict escalation was muted with a singular Iran response having no U.S. casualties. While Friday’s jobs report for December was positive, it was somewhat disappointing (below expectations) at 145,000 new jobs. Next week corporate earnings season will begin, offering insight on the financial health of the S&P 500 companies for 2020 with a diverse group slated to release numbers, including Delta Airlines, Citigroup, JP Morgan and Kinder Morgan. A week does not a year make, but it may offer some clues as to where the market will end 2020. History shows that the S&P 500 index has ended the full year in the same direction as it began it in 82% of presidential-election years since 1950, according to data compiled by Dow Jones Market Data. The first week of the year (which ended positive in 2020) is a stronger indicator in presidential-election years than in others.

Excerpts from The 2020 Capital Market Outlook (only existing & prospective clients receive entire comprehensive forecast and strategy newsletter)As we enter the New Year and contemplate the opportunities that the investment landscape may offer in 2020, it helps to look back at the performance trends of past years. It is our view that a good part of 2019’s gains were driven from an unjustified low baseline of 2018 where the S&P 500 lost (6.2)%, which in turn, set a depressed stage for both a recovery of lost ground and fundamental merit-based market gains. Recall, 2018 ended on particularly ugly note where investors were deeply rattled in December with a (9.2)% loss for the month, yet this fallen value baseline also set artificially low expectations for 2019. With market sentiment downtrodden entering 2019, the stock market was poised to rally as the Fed switched to cutting rates and a China trade war truce took hold; indeed, policymakers reversed course, with a trio of Fed rate cuts and a generous dose of new asset purchases fueling stock market gains.

2019 turned out to be a year filled with unfulfilled fears and unmaterialized worries about global economic slowdown, disruptive trade war and potential missteps from Federal Reserve. Hence, when it became abundantly apparent that the U.S. economy was the cleanest shirt in the world and impervious to potentially harmful trade wars, such as expectations of heated escalation, the Dow was propelled upward to+22.3%, its best year since 2017, while the S&P 500 saw its best year since 2013, gaining +28.9%.

In our opinion, the backdrop for equities and other risk assets remains favorable in 2020 and reflects a market narrative of slower growth economic, benign inflation globally, generally accommodative monetary policy globally, and equities still attractive relative to bonds. We believe in 2020 the market will operate on the premise that the Fed will remain on the sidelines and intervene should there be excessive (>10%) downside market volatility. Additionally, the Fed has said it expects to leave rates unchanged for 2020, giving investors clarity on top of what remain historically low rates.

Wall Street’s consensus forecast for the S&P 500 for most years typically falls in the 5%-to-10% range. Right now, CNBC's strategist survey shows a median predicted 2020 S&P 500 gain of +6.5% to 3375, while the maximum price target shows the S&P 500 could potentially breakout upward to 3,995, or +24% (according to Julian Emanuel, BTIG chief strategist). It is also our view that the market in 2020 is poised for high single digit returns.

Our forecast is supported by not only economic factors, the Fed’s supportive stance (don’t fight the Fed!) and government stimulus ($1.4 trillion budget), but also thematic data on where we are in the cycle based on a historical basis. Since 1952, the Dow Jones Industrial Average has climbed +10.1% on average during election years when a sitting president has run for reelection, according to the Stock Trader’s Almanac. Moreover, since World War II, the S&P 500 has gained more than +20% in a year 24 times; and then in the following year, stocks finished higher 80% of the time (or 19 times) with the average gain totaling +13%. In 16 of those 19 years, the market gained double digits.

Overall, we got a pretty good, robust, resilient economy right now. Watching US Treasury rates across the curve in conjunction with the shape of the yield curve offers key confirming signals as to the market's expectations about future growth/inflation. We remain focused on US Treasury rates as the best "market-signal" as it relates to U.S. economic expectations and as we enter 2020.